Please ensure Javascript is enabled for purposes of website accessibility

2 Top Value Stocks to Buy Now

By Timothy Green - Feb 14, 2021 at 6:10AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These stocks could surge as the market recognizes their true worth.

Growth stocks may be all the rage as the stock market flirts with new all-time highs, but value investing is a tried-and-true strategy that works over the long run. Investing in value stocks can look foolish at times, particularly when shares of unprofitable companies with no competitive advantages to speak of are delivering world-beating returns. But the pendulum always swings back toward value sooner or later.

Despite a frothy stock market, there are still some good deals out there for value investors. If you're looking for stocks with beaten-down valuations and the potential to soar as the market wises up to their true value, look no further than General Motors (GM 5.55%) and Hanesbrands (HBI 4.18%).

Puzzle pieces spelling value.

Image source: Getty Images.

An electric car company that turns a real profit

It seems like a foregone conclusion that electric vehicles will eventually replace conventional gas-powered vehicles. While this trend is probably unstoppable, it doesn't mean that every electric car company, or every electric car component company, is worth billions of dollars. It's very possible that electric car stocks are in a bubble and that even investors who are right about the trend will be badly burned.

Tesla may be many investors' go-to when it comes to electric cars, but the company only turns a profit thanks to regulatory credits and is facing a mountain of new competition from established automakers. With a ludicrous valuation, it's hard to imagine Tesla stock outperforming the market over the next decade.

If you want to bet on electric cars without suspending your disbelief, General Motors is the stock for you. GM is investing $27 billion into electric and autonomous vehicles in the coming years, and it expects to have 30 electric vehicle models on the market by mid-decade. By 2035, GM is aiming to have phased out gas-powered vehicles entirely.

There is no good reason to believe that GM can't compete with Tesla or any other electric car company. And unlike Tesla, GM is producing real profits now. The company reported $6.4 billion of net income for 2020 despite the pandemic, along with adjusted earnings per share of $4.90. Including the impact of the ongoing global chip shortage, GM expects to produce adjusted EPS between $4.50 and $5.25 in 2021.

At the midpoint of that guidance range, GM stock trades at a price-to-earnings ratio of just 11. Auto making is a cyclical industry, so profits can vary widely from year to year and a low PE ratio doesn't automatically mean the stock is cheap. But compared to the valuations other electric car companies are getting, GM looks deeply undervalued.

An apparel company making a comeback

Hanesbrands was able to offset tumbling sales of innerwear and activewear during the worst of the pandemic in 2020 by spinning up a personal protective equipment business. The company depends heavily on brick-and-mortar retailers, so pandemic restrictions and consumers' shifting to e-commerce did Hanesbrands no favors.

Things are now starting to look up for the apparel manufacturer, and the stock market has taken notice. The stock surged nearly 25% last Tuesday in reaction to a fourth-quarter report that checked all the boxes. U.S. innerwear sales soared 13% excluding PPE, and activewear sales were up 7% excluding the impact of business exits.

Notably, Hanesbrands no longer sees PPE as a long-term growth opportunity. Instead, the company will focus on growing its thriving Champion brand, going after younger consumers, simplifying its portfolio of products, and building out a bigger e-commerce business.

Hanesbrands stock has been trending downward for the past five years or so, and it would still need to rise another 50% to come close to its all-time high. The new strategy could deliver those gains, especially considering the beaten-down valuation. With analysts expecting adjusted earnings per share of $1.60 this year, Hanesbrands stock trades for just 11.5 times earnings.

If Hanesbrands can successfully grow earnings and convince investors that there's a real long-term growth story, the stock could easily deliver market-beating returns. Now's the time to invest in this value stock on the rise.

This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
$34.82 (5.55%) $1.83
Hanesbrands Inc. Stock Quote
Hanesbrands Inc.
$10.72 (4.18%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.